In my previous posts, I looked at the importance of making sure your credit score was accurate, as a way of plugging up holes in your cash flow bucket to free up income. Here I look at the importance of having the right structure for your loans and your insurance.
Restructure Your Loans With 5 Day Weekend Lifestyle
One of the first places to look for where you’re losing money is your loans. If you haven’t renegotiated your interest rates or restructured your loans in the last two years or so, you’re probably overpaying when it comes to cash flow.
Here are a few strategies that may be helpful, depending on your unique situation:
- Roll high-interest, non-deductible loans into low-interest, tax deductible loans. For example, you could refinance your home and roll your credit cards into your new mortgage.
- Refinance your mortgage.
- If your car is paid off, you may want to refinance it and use the loan to pay of a higher interest rate loan.
- Use a loan from a cash value insurance policy to pay off a higher interest rate loan.
- Lengthen the term on the loan to lower the payment and improve the Cash Flow Index.
- Get a loan from a retirement plan to pay off a high interest loan.
- Get a loan from a family member or friend using a promissory note. Pay them more interest than the bank gives them but less than the bank is charging you.
Structure Your Insurance Properly With 5 Day Weekend
Poorly structured insurance is another common area where most people are leaking cash. Here are a few areas to consider here:
- Raise your deductibles. The lower your deductible, the higher your monthly premium. The reason you have insurance is for major losses, so it usually doesn’t make sense to have a low deductible. If your deductible is low and you make a claim, your premiums will raise. I recommend raising your deductibles to $1,000 to $2,500, depending on the company and how much savings it provides.
- Check for duplicate or unnecessary coverage. You may have too many policies that cover the same thing. One example would be an umbrella policy and having more than the required minimums on car and homeowners liability for the umbrella to kick in. Consider dropping policies that do not cover the catastrophic events: including short-term disability policies, accidental death and dismemberment, and other policies with limited coverage.
- Use umbrella policies to coordinate insurance. Umbrella policies provide liability coverage over and above your automobile or homeowners policy. So if your liability coverage isn’t enough to cover damages, a personal umbrella insurance policy kicks in where your other liability underlying limits have been reached. An umbrella policy can protect you when your automobile or homeowners insurance isn’t enough. With properly structured umbrella policies you can often double your coverage while lowering your premiums.
- Use a health savings account. A health savings account (HSA) is a tax-advantaged medical savings account available to U.S. who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit. (Health insurance changes rapidly. This information is accurate as of writing this.)
- Extend elimination period on disability insurance. The elimination period is the period of time between the onset of a disability, and the time you are eligible for benefits. It’s essentially the deductible period for disability insurance. Premiums are extremely high for thirty or sixty day periods. Premiums drop substantially for 180-day periods or longer.
- Combine long-term care insurance with life insurance. Long-term care insurance may be unnecessary if you have a proper provision on your life insurance death benefit (accelerated death benefit rider).
In my next post I look at how you can improve your tax deduction situation by incorporating, as a way of plugging cash flow leaks to boost your income.
In the meantime, I’d love to hear from you about your experiences with loans and insurance: have you restructured them to your benefit? How did you go about this? Thank you for sharing.
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